There is no single right structure for putting black ownership into your business. There is a range of them, and they differ mainly in three things: who pays, who takes the risk, and how quickly the black shareholder genuinely owns something. What follows is what is actually used in South African practice. The order runs from the simplest — a straight cash sale — to the routes that exist precisely to solve the problem that most black buyers cannot write a large cheque.
One idea runs underneath all four routes: net value. Votes and economic interest usually score in full the moment a black person becomes a real shareholder. The hard part is net value — how much the shareholder owns after the debt taken on to buy in — and that is where the funding choice does its work. If you have not read it yet, our page on net value explains the line these structures live and die on.
Selling shares for cash
What it is. A black investor buys shares from you, or subscribes for new shares, and pays for them with their own money. Nothing is lent and nothing is owed.
How it scores. A cash purchase ordinarily creates no acquisition debt, which is the single biggest advantage available on the net-value line. Remember that net value subtracts, in effect, the debt the shareholder took on to buy in; a cash buyer took on none, so there is nothing to subtract. It is not the only structure that avoids acquisition debt — shares given outright do too — but it is the cleanest. That said, the points still depend on the percentage acquired, the rights attaching to the shares, a defensible valuation and the position at each measurement date. A cash sale is not a magic pass; it simply removes the hardest obstacle before you start.
The catch. It is commercial rather than legal: a buyer must have the cash, and if you insist on cash you may not find a partner on the terms you want. Most of the structures that follow in this part exist for exactly one reason — to solve that problem, so that a black partner who does not have the money up front can still become a real owner.
Selling shares and lending the money
What it is. You sell the shares at a fair price and lend the buyer the purchase price. The loan carries interest. The shares are commonly pledged to you as security — a pledge is a right to hold the shares as collateral until the loan is paid. Dividends on those shares are applied to the loan, often with a small amount — a “trickle” — retained in cash by the black shareholder each year. This is what most people mean by “vendor finance”.
How it scores. The black shareholder gets full votes and full economic interest from day one, because they are a real shareholder from the moment the sale registers. Net value, though, builds only as the shares grow in value faster than the loan grows with interest. In the early years the loan is large against the shares, so net value is thin; it fattens as the business grows and the loan is paid down.
Two things to get right
First, the pledge must not take away the votes. The black shareholder must keep and use the votes unless and until they default on the loan. A security arrangement that quietly hands the votes back to the seller defeats the whole exercise — you have sold economic exposure but kept control, which is the shape of a fronting arrangement, not a genuine sale.
Second, think carefully about the cash trickle. The Codes do not require one. Economic interest is the right to receive a return on ownership, not proof that a dividend was declared in any particular year, and the Minister has confirmed that a business is not penalised on the scorecard merely for not distributing.
That is not our gloss on the Codes. The Minister’s Practice Note on discretionary collective enterprises (General Notice 428 in Government Gazette 44591, 18 May 2021, paragraph 2.10) confirms that economic interest is the right to receive a return on ownership, not proof of an actual distribution in any given year. Read together with the definition of “fronting practice” in section 1 of the B-BBEE Act, that is why a trickle is prudent even though it is not required. You will find both on the sources.
So why bother with a trickle at all? Because if your documents record an entitlement and the money does not follow it — or a declared benefit is diverted or withheld — those are facts that go to fronting. A trickle is simply a way of keeping the paperwork and the money in step. It is risk management, not a compliance rule: you are not buying points with it, you are removing a fact that a critic could point to later.
Notional vendor finance
What it is. The shares are transferred outright and the black shareholder goes onto the share register with full votes. But instead of a real loan, the parties record a notional balance equal to today’s value of those shares. No money changes hands and nobody owes anything. The balance grows at an agreed rate and is reduced by the dividends attributable to the shares. At the end of the term — usually eight to ten years — the shares are valued again. Whatever they are worth above the notional balance belongs to the black shareholder; the rest is bought back for a nominal amount.
Why it is popular. Nobody has to find any money, nobody carries debt, and the black shareholder can never end up owing anything. They are a real shareholder from day one, so votes and economic interest score in full. For an owner who wants genuine black ownership without asking a partner to fund it or take on a loan, it is an attractive middle path.
What to understand before agreeing to it. The notional balance should be expected to reduce net value in the same way a real loan does. That means the structure can score well on 17 of the 25 ownership points and poorly on the 8 that carry the sub-minimum — the net-value points that can pull down your whole level. And the black shareholder can genuinely end up with nothing after ten years if the business has not grown. That is the deal — but it should be explained plainly to them before they sign, not glossed over.
Outside funding and special purpose vehicles
What it is. A bank or a development finance institution (a DFI) funds the purchase — often by subscribing for preference shares in a separate company (a special purpose vehicle, or SPV) set up to hold the stake, rather than by lending in the ordinary way. Preference shares are shares that carry a fixed, priority return rather than the ordinary rights of an ordinary shareholder.
Two things to get right
First, the funder’s preference shares should be non-voting. If they carry votes, they dilute black control in the holding company — the funder starts sharing in the very control the structure exists to hand to black shareholders. Keep the funder’s instrument economic, not political.
Second, an instrument that looks like debt is treated as a loan for scorecard purposes. So debt-like preference shares reduce net value just as a loan would. You do not escape the net-value drag by calling the funding “shares” if, in substance, it behaves like a loan.
This follows from Statement 100, paragraph 3.14 of the Amended Codes: an instrument that looks like debt is treated as a loan for the net-value calculation, so its substance — not the “shares” label — decides how it scores. See the sources.
None of this makes outside funding a bad route. It is often the only way a large stake gets funded at all. It simply means the deal has to be built by people who can see both sides of it — the scorecard treatment of the funder’s instrument, and the tax treatment of the returns on it. Get those two right and preference funding does exactly what it is meant to: it puts real black ownership in place without anyone in the room having to write the cheque.
Frequently asked questions
It creates no acquisition debt. Net value — how much your black shareholders genuinely own after the debt they took on to buy in — is the line almost every deal fails on. A cash buyer who pays with their own money has nothing owing against the shares, so there is nothing to subtract. It is not the only debt-free route (shares given outright are too), and the points still depend on the percentage acquired, the rights on the shares, a defensible valuation and the position at each measurement date. The catch with cash is commercial, not legal: the buyer must actually have the money. See Net value explained.
It must not. The whole point of vendor finance is that the buyer is a real shareholder from day one, with full votes and full economic interest. The shares are usually pledged to you as security for the loan, but the pledge must be drafted so the black shareholder keeps and exercises the votes unless and until they default. A pledge that quietly parks the votes with the seller strips the very thing the scorecard measures — and starts to look like fronting rather than security.
No. The Codes do not require one. Economic interest is the right to receive a return on ownership, not proof that a dividend was declared in any particular year, and the Minister has confirmed that a business is not penalised merely for not distributing. But a “trickle” — a small slice of each year’s dividend paid in cash to the black shareholder rather than applied to the loan — keeps the paperwork and the money in step. If your documents record an entitlement and the money does not follow it, that is a fact that goes to fronting. It is risk management, not a compliance rule.
In notional vendor finance the shares are transferred outright and no money is ever owed. Instead of a real loan, the parties record a notional balance equal to today’s value of the shares. That balance grows at an agreed rate and is reduced by the dividends on the shares. At the end of the term — usually eight to ten years — the shares are valued again; whatever they are worth above the notional balance belongs to the black shareholder, and the rest is bought back for a nominal amount. It is popular because nobody funds it and the shareholder can never end up owing anything. The honest catch: the notional balance should be expected to reduce net value like a real loan, and the shareholder can end up with nothing if the business has not grown.
Because tax is not optional here. Preference-share funding engages specific anti-avoidance rules in the Income Tax Act 58 of 1962 — sections 8E and 8EA — which can turn what looks like a tax-free dividend into taxable income in the funder’s hands. Section 8EA was amended by the Taxation Laws Amendment Act 5 of 2026, with effect from years of assessment commencing on or after 1 January 2026. On the scorecard, the funder’s preference shares should be non-voting (or they dilute black control) and a debt-like instrument is treated as a loan for net value. Get a tax opinion before signing.